The Consumer Financial Protection Bureau (CFPB) has issued a bulletin reminding lenders not to discriminate against borrowers who are receiving Social Security disability income.
Under the Equal Credit Opportunity Act (ECOA), when a borrower who is receiving disability income applies for a mortgage, the lender is not to ask any questions about what the disability is, how long it might last or how long the borrower expects to receive the disability income.
At the same time, the lender must consider that income, when underwriting a loan, as income from public assistance programs qualifies under the CFPB's ability-to-repay (ATR)/qualified mortgage rule.Â
As the CFPB points out, the Social Security Administration in general does not provide documentation to recipients regarding how long their benefits will last. In order to find that out, lenders need to check the borrower's benefit verification letter or equivalent document to see if it includes an expiration date. Unless that document specifically states that benefits will expire within three years of loan origination, lenders should treat the benefits as likely to continue, the CFPB says in its bulletin.Â
Some applicants have reported being asked for information about their disabilities or even for doctors' notes about the likely duration of their disabilities. Lenders that request this additional information may run the risk of violating ECOA rules.
The bulletin discusses standards and guidelines on verification of Social Security disability income under the CFPB's ATR rule; the Department of Housing and Urban Development's standards for Federal Housing Administration-insured loans; the Department of Veterans Affairs (VA) standards for VA-guaranteed loans, and guidelines from Fannie Mae and Freddie Mac.
To read the full bulletin, click here.